The publication of the last statistics about the German economy allows to questioning us on the capacity of the country to overcome its current difficulties and to keep in Europe its leader position given by its size and its situation as a model which have been granted to it by its past remarkable results both regarding its exceptional foreign trade thanks to its industry and its public finance and inflation mastery. Germany came into recession. according to the definition based on a diminution of its GDP during two consecutive quarters. These ones have regressed by 0.5% during 2022 4th quarter and by 0.3% during 2023 1st quarter. These figures are among the lowest of the major world economies. Inflation year-on-year has reach 7.2%, by large higher than the level observed in France. Industrial production has slowed and the trade surplus, still high, yet knows a significant fall. These figures testify a much stronger impact on Germany of the international environment deterioration, notably generated by the invasion of Ukraine by Russia and by the tensions between the United States and China.
The strength of the German economy for 25 years results from three factors. There is first the success of the reunification. The East-German industry was in a deplorable state, to the opposite of a largely shared view. The government has known how to restructure it and has supported its enterprises strategy consisting in investments in the former Eastern European countries which went from the status of political satellites of the Soviet Union to the status of economic satellites of Germany. There were no large de-localizations according in its strict sense. But new supply chains have been built. The car industry has kept, to the difference of what has been done in France, the great assembly lines but has made coming from neighboring countries components produced at much lower prices.
We must not be wrong about the “Hartz reforms” launched during the Schroeder government allowing to creating “mini-jobs”. The purpose was not to fight against labor coasts but to slow the rebound of the immigration of East Germans toward the West in order to get better social benefits. The fact to refuse a job in the East deprived them to the right of obtaining benefits in the West. As these ones did not vote in favor of the social-democrat party, they would have put in danger in many landers the majorities the government needed. These measures have been wrongly interpreted in France where appeared the debate about the too high labor coast and the costly measures decided to reduce it without any impact on the competitiveness as testifies it the continuous degradation of the country trade balance.
The second factor of the industrial and so economic success of Germany lies in the enterprise culture based on the sharing of the created value, a sharing made easier by the participation of employee representatives in the governing bodies. That culture can be found in the choice of the executives which lies on criteria like the knowledge of the technical and commercial capacities of the company and of the clients needs and not on careers in the high administration opening networking possibilities in ministers and even at higher levels. The “Mittel stand” has plaid a key role in the constitution of a strong industrial basis in Germany.
All that explains that the German enterprises have known much better than their European and especially French competitors, how to take profit from Chinese growth and to invest there to supply the goods the enterprises and the consumers of the Middle Empire needed, then too to the difference of France. The car industry case is revealing. When Peugeot and Volkswagen were present from the beginning of the Eighties, the German constructor realizes there now most of the half of its world sales. And the three brands, BMW, Mercedes and Audi have very quickly understood that the car was first a social success sign and have offered to the Chinese consumers what they wanted with top-of-the-range vehicles.
The third factor lies in a less costly State organization and generating much less bureaucracy than in France. Inside the eurozone, has been then established a battle, if not of wills, but at least of influence giving an advantage to virtuous countries and allowing them to imposing decisions, as for instance regarding energy, which were favorable to them and which were weakening their competitors with France in the first position. Being under the threat of sanctions due to high indebtedness and deficits, Paris was not in a good position to block the measures which were harming it in other sectors and felt obliged without any economic or safety reasons, to close the Fessenheim nuclear power plant to reply to a Berlin demand.
Since the crisis which followed crisis, everything has changed and, in many cases, durably. The energetic crisis resulting from the invasion of Ukraine, has put publicly the failure of the German energetic policy. Renewables being intermittent, it was an obligation to have at disposal power production sources available at any time. The choice, regarding natural gas, made the bet that Russia would normalize its political regime and would become, if not an economic satellite of Berlin, but at least a partner for its industrial goods exports as important as its European neighbors. The abandon of nuclear, as the “Hartz reforms”, had first a political objective and in the first case, as its main purpose to obtain in the same time the support of the ecologists and of the populations of the landers where were localized the coal mines whose jobs would be preserved. Germany will have so to accept a much higher energy cost, generating inflation as it is noticed today which will affect the competitiveness of essential industrial activities.
The prosperity of the car industry as the prospects offered by the Chinese market are not any more guaranteed. The vehicle electrification constitutes a threat when we observe the lead taken by the Middle Empire car makers and the fact that the country controls strategic raw materials. Not only the exports and the local productions will be affected but also the presence, in the European market, of Chinese vehicles have all the chances to strongly increase to the detriment of the German industry.
This one will be doubly penalized. In the same time, the Chinese economy has set in motion its mutation, as the last published statistics show it. It is definitely the services sector which has taking over, in growth terms, household consumption. That will slow the demand of imported goods, of machines to equip the plants and of consumer goods for household and so exports from Germany.
The German model will have to reinvent itself and to do that, it will be necessary that the political leaders admit it and recognize the past mistakes as in the energy sector. They will also try to put into question the electric vehicle conversion. A first attempt has occurred but the consequences will be so heavy for the car industry, and not only regarding employment, that it is not the announcement of a “giga factory” to produce batteries, which will make these consequences disappearing.
The end of the German model, whose success had been based on its exports of goods produced by its industry and by a low inflation, could allow a rebalancing of the influences in the European Union. But to achieve it, France must take conscience of it to make the most of its interests.